Appeals Court Stops Re-selling of Software

Friday, a 9th Circuit Federal Appeals Court agreed with the computer software industry to stop sales of second-hand programs covered by widely used licensing agreements. The case was about online merchant Timothy Vernor, who was using eBay to sell unopened copies of Autodesk?s software which he had bought in office closure and garage sales. Specifically, Vernor had purchased old copies of AutoCAD Release 14 from an Autodesk customer called Cardwell Thomas & Associates [CTA] and sold them on eBay.

The appeals court overturned a lower federal court ruling that was in favor of Vernor?s position. That federal judge said it was okay to sell unopened software as used merchandise.

The three judge 9th Circuit Appeals Court panel ruling on Friday circumvents a 1908 US Supreme Court ruling on the so-called "first sale doctrine". The 1908 ruling specifically said copyright holders cannot prevent a buyer from reselling or renting a product after an initial sale, as long as additional copies aren’t made. This is the legal principle that allows used book and music stores to operate, as well as DVD subscription services such as Netflix.

Corynne McSherry, an attorney for EFF, said the ruling sets the stage for even more legal skirmishes over the definitions of a sale and a license. McSherry further said: "I am sure there are going to be others [in the media] trying to find the magic words that prevent a buyer of intellectual property from being considered the owner." Vernor’s attorney, Gregory Beck of Public Citizen, said he intends to ask a full panel of eleven judges in the 9th Circuit to review Friday’s decision before considering a possible appeal to the US Supreme Court.

To get another perspective on the Vernor vs Autodesk case we went to Groklaw. Groklaw is one of the best sources for legal information about the computer industry. The founder of Groklaw, P.J. Jones, has been correct about computer law case outcomes more times than not.

Jones briefly discussed the Vernor vs Autodesk case. She said in part: "Morrison & Foerster’s Michael A. Jacobs was on the team for AutoDesk, and after reading many of the documents in the lower court and in the appeal, some of which I have for you, I did believe his team was more likely to prevail in the end. It’s never prudent to bet against Mr. Jacobs. So, the first sale decision by the lower court in favor of Vernor is vacated and the case is now remanded to look at the issue of whether Vernor has a copyright misuse defense." Jones also said "I did expect that the lower court’s decision would be reversed. EULAs [End-user license agreement] are generally upheld, from all I know and have seen".

The final comment of the 9th Circuit Appeals Court order was:

"We vacate the district court?s grant of summary judgment in Vernor?s favor and remand. We hold that because CTA is a licensee, not an owner, the "sale" of its Release 14 copies to Vernor did not convey ownership. Vernor is accordingly not entitled to invoke the first sale doctrine or the essential step defense, on behalf of his customers. We remand for further proceedings consistent with this opinion, including consideration of Vernor?s copyright misuse defense."

This case has gone on for three years. It will continue to fuel the fires of open-source versus proprietary software and who really "owns" a product. However, the existing commercial software organizations have a stronger voice [i.e. lobbying] with the US Congress who writes the laws. Until the open-source and used software vendors find a way to influence legislators, the status quo will favor the original producer of the software licensing agreements. In our opinion, the opponents will spend a lot of time in court without changing much of anything.